Thursday, April 28, 2011

My Big Idea is that the Democrats could have learned from the Reagan era. They could have said to themselves: hey, we screwed up. We screwed up society with our 1965 War on Poverty, which our own metrics showed didn't work. We screwed up the economy with the stagflation policies of the 1970s when our program of balancing inflation and unemployment clearly did not work. Here's Reagan, the amiable dunce, and he's kick-started the economy into a stunning boom while winning the cold war. Maybe we could learn something here.

But they didn't. Our Democratic friends have spent the last generation manufacturing policy pretzels to prove to themselves that their big-government, big-regulation political vision really was right after all.

The result of this huge mistake is President Obama, and he is failing at all levels.

Tactically, as John Podhoretz writes, he is failing at the stupid "birther" level. The Obamis evidently thought they were being clever letting the conspiracy nuts have their head on this, but when Donald Trump made it work for him they were forced to put the birth certificate out anyway. I suppose the embarrassment they were trying to avoid is that Ann Dunham Obama was 18 when Barack was born.

Strategically, as Karl Rove writes, Obama is making a mistake with a strategy that lurches left now on the assumption that it can go centrist next year.

Instead, it risks permanently alienating independents, soft Republicans, and a few Democrats who dislike his appeal to the hard left. Savaging the GOP's deficit-reduction plan as "radical" and "nothing serious" may fire up Daily Kos bloggers and gratify Nancy Pelosi. But it's likely to turn off swing voters.

Grand strategically, as Walter Russell Mead writes, he is getting everything else wrong, from foreign policy to stimulus policy. Mead criticizes the president for a half-way approach, splitting the difference and angering both his supporters and his opponents. But I think the problem is bigger than that.

On foreign policy, the President of the United States must rule over the Pax Americana, treating kindly those that want to trade peacefully and sensibly with our commercial commonwealth and treating roughly the thug dictators and pirates that do not. On economic policy the president needs to dial back the pedal-to-the-metal credit and spending and regulation philosophy that has got the United States close to a debt-default situation. The purpose of a stimulus is not to stimulate; it is to tide people over the trough of the recession. But President Obama's stimulus was a slush find for Democratic supporters, and thus a waste. The crying need on health policy is to get off the "first dollar" approach that encourages overuse of health care on minor problems and replace it with a high-deductible policy that encourages Americans to pay for routine health care with their own money and only use health insurance for big-ticket items. President Obama's ObamaCare went in exactly the opposite direction, pushing the United States towards a breakdown in health care funding. Democrats think that such a crisis would allow them to take health care over completely, but they may be surprised by the American people.

The fact is that the liberal model of the centralized administrative welfare state is broken, and President Obama just happens to be president at the moment that this becomes glaringly obvious to the American people. It also just happens that the president is a perfect poster boy for just what is wrong with the Democratic Party: its affirmative action racism, its removal from the American heartland in liberal enclaves like Chicago's Hyde Park, its insular culture in selective colleges and center-left media and think tanks.

Well, now it looks like we are heading for the Perfect Storm, and the American people, especially the Democrats' core constituencies of minorities and single women, are going to suffer.

None of it had to happen if the liberals and the Democrats had taken the trouble to learn the lessons of the 1980s from that amiable dunce, Ronald Reagan.

Wednesday, April 27, 2011

One thing you can say about the mainstream media. They are quick to whale on anyone that dares to deny the truth of global warming. The science is decided, they like to tell us, and they are delighted to echo the activists that insist that anyone that disagrees is a "denier."

Q: But is there no way to save it [Medicare] without moving to a system of premium support?

RYAN: Yes there is, and it’s what the president’s proposing which is to ration Medicare. We do not want — we do not believe in the idea of having a board of unelected people putting price controls and rationing on Medicare.

Q: But don’t you ration it anyway?

Honey. The science is in on this. Rationing with price controls doesn't work. Never has worked. Never will work. When you propose with such a question that government rationing is a realistic option you are helping the deniers, the people that think you can ignore the science developed in the last two centuries about the operation of the economy.

CBS would never think of boosting the deniers when it came to climate science, a scientific endeavor that we now know is something less than a science. So why does CBS not apply the same test to economics deniers?

Well, we know why. CBS allows respectability to the economics deniers because it helps Democrats. Most everything that Democrats propose flies in the face of everything we know in the human sciences. But their faith, in the face of the science and the facts, is that government is the answer: government force, government rationing, government subsidies, government price controls.

So it's a religious thing. CBS and the Democrats worship at the same church and so, for CBS, the economics deniers are good guys.

Tuesday, April 26, 2011

In Wisconsin, Henry Olsen writes, white working class voters are returning to the Democrats. They see the GOP attack on government union collective bargaining rights as a threat to their economic security. Are they right?

Or are they just selfish, welfare state addicts selfishly sucking benefits from their fellow citizens? That's what Dennis Prager argues. The welfare state teaches people to become selfish, he writes.

Capitalism teaches people to work harder; the welfare state teaches people to want harder. Which is better?

I marvel that we have ever had a society in which people refrained from grabbing the maximum that their political power allowed. In the simple predatory warfare of the agricultural age the idea was to loot the rest of the world to bring home booty. In the welfare state the idea is that every entitlement is a "right." The politics of entitlement is a politics of indignation at the very idea of "give-backs," rights that can be taken away.

The magic of capitalism, of course, is that you can only amass a pile of rights--expressed as money income or property--if you give the world something really useful. Thus the monkey is on your back to discover something that the world wants, and is willing to pay for. The entitlement philosophy is the opposite: you deserve benefits and rights just because you are a member--of the nation, the union, the identity group.

Obviously, the truth lies in the middle. The whole point of humans as social animals is that we get protection from the big, bad world because the social group protects us. But the social group cannot work unless its members willingly work to benefit their social group.

The miracle of capitalism is that it is a system that rewards people for actions that benefit society; it exploits their natural selfishness in ways that are typically socially useful. The welfare state, on the other hand, encourages people in selfish and free-rider behavior; it rewards people that form powerful political coalitions and that establish a moral case for support by the rest of the community.

We know, of course, that the welfare state is coming to an existential crisis. The mechanics of the welfare state encourages politicians to promise rights and benefits to voters that can never be delivered. But how can you tell that the promises are empty? The economy is big and wealthy, and surely the rich can afford to pay a little more.

The only time you really get to know if the politicians have promised too much is when you get to a sovereign debt crisis--like Greece, Ireland, and Portugal.

Democrats mourn that today's Republicans seem to be intent on wrecking the national finances by voting for tax cuts in the face of big deficits. They are right of course. We know that the only way the welfare state will ever stop growing is if we cut the supply of revenue and bring on the fiscal crisis that will cut the supply of money to the welfare state beast.

That is the only way to break the illusion that the welfare state offers security.

Monday, April 25, 2011

If liberals are piling on some political figure there must be something good about him. If conservative Poo-Bahs pile on too, then there really must be truly exceptional there.

So let's review the book on Sarah Palin.

Way back when, in 2009, Palin put up a note on her Facebook page about "death panels" in President Obama's ObamaCare package. Now it's the law and the president is optimistically talking about his "independent commission of doctors, nurses, medical experts and consumers" that will be cutting Medicare reimbursement rates.

Sarah Palin has always been solid on the need to develop conventional energy resources and hold back from wasteful subsidies on "green energy." She has sneered at President Obama's "very fast trains" and now the Chinese are slowing theirs.

Sarah Palin went to Wisconsin and told the teachers that their pensions were sacred and Gov. Walker was working to save them.

And now as experts are starting to agree that the Federal Reserve's "quantitative easing" or inflation hasn't boosted the economy as much as it has boosted food and energy prices, we are reminded that Sarah Palin spoke out against QE2 months ago.The Wall Street Journal reported on Palin's speech.

“We don’t want temporary, artificial economic growth brought at the expense of permanently higher inflation which will erode the value of our incomes and our savings,” the Journal quoted Mrs. Palin as saying. “We want a stable dollar combined with real economic reform. It's the only way we can get our economy back on the right track.”

Yet we have political experts like Karl Rove saying that Sarah Palin cannot be president.

Well, is Palin running or not? People seem to be interpreting her reticence about announcing as a sign that she won't run (even though such blushing is usually considered a sure sign of a presidential candidacy).

In my judgement, Palin can delay an announcement of formal candidacy later than the other candidates. She is such a star that as soon as she announces she will move to the top of the heap. So why waste energy by turning on the klieg lights before the curtain goes up?

The 2012 election is going to be fought on the straight issues of government spending, debt, inflation, and the failure of President Obama to guide the economy out of the 2008-09 slump.

On that Gov. Palin is rock solid and consistent as a common-sense constitutional conservative. So why do the pundits think she's a flake?

Thursday, April 21, 2011

It's the old story. A populist leader bewitches the peasants with talk of justice for the poor and an end to inequality. He promises well-deserved raises to ill-paid government workers, and spreads out subsidies to help folks with their heating and cooking fuel.

Then comes reality.

Reality is hitting Evo Morales and Bolivia right now, as the populist president tries to roll back fuel subsidies and faces demands from government employees.

Last December, his country erupted in massive street protests when Morales abolished fuel subsidies and thereby caused an abrupt spike in gasoline and diesel prices. Chastened by the violent backlash, he quickly reversed his decision and restored the subsidies. A few weeks ago, fresh anti-government protests began. Spearheaded by the most powerful Bolivian trade union (the Central Obrera Boliviana), the demonstrations were aimed at winning a 15 percent salary increase for teachers, miners, policemen, and other public-sector workers.

Not so long ago he was a populist union leader, the darling of progressives everywhere.

I suppose that if you are a populist politician--sorry, any politician--you tell people what they want to hear.

But come on fellas, we know that subsidies and price controls don't work. And we know that feeding the beast of unionized government workers just feeds their appetite for more.

What is interesting in the Bolivian case is that Evo Morales seems to lack the charisma and the thuggishness of his mentor Cesar Chavez. Maybe it's just that Bolivia doesn't have as much wealth to loot as Venezuela, so the money ran out faster that it is running out up north.

But I am looking at the bigger issue: the problem of unwinding any government program. The fact is that any government program is in the business of giving away free stuff. It doesn't matter whether it is Social Security subsidizing pensions for the low-paid, or government schools giving away education for "free." Pretty soon people get to expect those free services; they organize their lives around them. And they get really angry if the government runs out of money. They don't care that the money has to come from taxes on business—the businesses that give them jobs—they don't care that, e.g., their pensions and their unemployment come from swingeing taxes on ordinary working stiffs. They just want their money and they are prepared to break the peace in order to force the government to keep paying up.

That's the lesson of Madison, Wisconsin, not just third-world Bolivia. You give stuff away for free, then you will find that people will fight to keep that free stuff when you run out of money.

That's what we are going to see here in the United States in the next few years, after the Republicans get back the White House and the Congress, and it ain't gonna be pretty.

In fact, it's time for Republican gray beards to be thinking, right now, about the strategy to deal with the government workers and lefty activists that are going to be doing the Madison thing in the years ahead.

I suppose that the best thing to do is start with a 60-40 presidential election blowout, something that makes President Obama's seven percent "we won" look like a dead heat.

Wednesday, April 20, 2011

Conservatives are shocked that overwhelming percentages of Americans are opposed to changing Medicare to a defined contribution system, i.e., over 80 percent. Of course, if they knew what ObamaCare had in store for them, the Independent Payment Advisory Board they would probably oppose that by 60 percent. According to The Wall Street Journal the board seems to have power to do one thing.

Mr. Obama, by contrast, is relying on the so far unidentified technocratic reforms of 15 so far unidentified geniuses who are supposed to give up medical practice or academic research for the privilege of a government salary. Since the board is not allowed by law to restrict treatments, ask seniors to pay more, or raise taxes or the retirement age, it can mean only one thing: arbitrarily paying less for the services seniors receive, via fiat pricing.

So, the Obama policy for Medicare is price controls. Maybe that is the only way to get to a reform of Medicare. We know what will happen with price controls. Shortages. President Obama's policy will end up wrecking Medicare.

But maybe that's the point. If 80 percent of people are opposed to reforming Medicare by turning it into a regular health insurance plan, and they will surely be opposed to the secret "death panel" plan to screw down payments to providers, and if President Obama is refusing to agree to any spending cuts in the mammoth welfare state, as his April 13 speech indicates, then reform will have to wait until the system crashes.

I keep saying this, but I must say that I can hardly believe it.

There is another thing that I can hardly believe, but which is suggested by the out-of-town tryout in Madison, Wisconsin. When the crunch comes, Democrats will be putting their people into the street.

What is the best scenario for America? I'm coming to the view that we need President Obama to win reelection in 2012. Probably we'll get a Republican Senate as well. Then, of course, 2013 and 2014 are going to be hell. Either the president will implement spending cuts or we will have inflation and a debt default. In either case there will be a massive rejection of the Democrats in 2014, setting up a Republican president and Congress in 2016.

The problem is that many people are going to suffer. Forget seniors and health care (let's face it, we geezers are going to die anyway sooner or later) what about the ordinary Americans whose lives will have been wrecked by the economy maelstrom?

I had my hair cut yesterday by a young woman that's worried about her husband, a construction superintendent. He's worried about being laid off, and they are worried about losing their home in a Seattle suburb. What about them, as the two sides in the political civil war play their political games?

Tuesday, April 19, 2011

When George W. Bush was president his partisan supporters often urged him to take off after the partisan attacks on him. Clearly, after the contested election results of 2000 the Democrats maintained a highly partisan atmosphere for most of Bush's two terms, and the intention was to delegitimize Bush and all his works.

Should Bush have led with his fists? Many people say that a policy of overt partisan rhetoric is dangerous for a US president because he is not just head of government but head of state. Thus a partisan president is making the argument that his opponents aren't just his party's opponents but the nation's opponents. Liberals are very sensitive about this, when they are on the receiving end, as in the "love it or leave it" days of the Vietnam War. In the immediate post 9-11 period they were quick to jump on anyone that questioned their patriotism.

President Clinton was masterful at playing the role of the president of all of us and then making partisan points from a bipartisan stance. He would complain about the partisan Republicans opposing his bipartisan balanced budget.

President Obama, when running for office, spoke a lot about cynicism and harmful partisanship. But his record since winning office has been sharply partisan. And now, with his April 13 speech, he has launched a partisan attack on the Ryan Budget Plan.

I admit that I was shocked by his speech. No president in my memory has ever acted in such a partisan manner, certainly not this far from an election.

But let us forget about the propriety of his decision to go partisan, the danger of splitting the country in two. The question is: will it work. The danger is that the president may unite the country against him. And there is the risk that it will turn off middle-class white women.

One of the reasons that politics is usually all lovey-dovey is that, unlike the revolutionary time or the pre civil war era, today women have the vote. And women hate brawling. The female way of fighting is to say, prior to sticking in the knife, "bless her heart."

Jonah Goldberg has a list of wrong calls by the conventional wisdom in the last two years. Among them are the failure of the American people to support a New Deal, and failure to support a new expansion of entitlements. Maybe the failure of the conventional wisdom is centered in a lack of understanding of women. Women are much more risk-averse than men and are frightened by bold initiatives that might end in disaster.

If President Obama is scaring the pants of America's women with his partisan rhetoric he may come to regret it. Big time.

Monday, April 18, 2011

Here are five reasons why President Obama won't win reelection next year, according to Jeff Reeves.

The Fed and Inflation

Persisting Unemployment

Voters Feeling Poorer

US Debt

Gas Prices

To counter that here is John Hawkins telling us about the five bad things that will happen when America goes bankrupt.

Life savings chopped by inflation

Taxes will skyrocket

Rioting and Violent Crime

Government entitlements will dry up

Reduced standard of living.

What's the difference between these two geniuses? Not much. They are just illuminating the Stations of the Cross, the road to economic Calvary that we are presently on.

The thing to remember about all the brickbats flying around--and I do my share of it--is that when the balloon goes up, it is ordinary paycheck-to-paycheck Americans that will suffer. The politicians? They will do all right, except maybe for a couple that get selected as scapegoats. The bankers and CEOs? Society needs them in fair weather and in foul. The mainstream media? They'll do just fine. The bureaucrats? Every government needs its bureaucrats. They'll still be there after the fall.

It is ordinary Americans that are going to get screwed by the coming tsunami: people with marginal jobs, people without powerful political protection. And it's a shame.

It is this understanding, that the people get screwed, that informs the conservative argument for limited government. Government is force, politics is power, government spending is waste, and government taxes are a theft of the labor of ordinary workers.

The only solution is limited government.

There has to be some government, for sure, but the smaller it is, the less it will waste, the less power that powerful people will have to boss people around, and the less that taxes will cut in on the incomes of ordinary people.

But what about the poor? What about the unfortunate? Conservatives say that the best way to look after the least among us is to remove the yoke of force, to take power politicians out of the social process of helping the helpless. In fact, the more that government does, the less that people do, and the more that social services are socialized the less that people are socialized.

A century ago the liberals told the working class that they were being screwed by the bosses. Give us your votes, they said, and we will give you what you deserve. Fifty years ago the liberals told women that they were being screwed by the patriarchy. Give us your votes, they said, and we will liberate you from male oppression.

Well, now the results are in. Life is great for the upper middle class of liberals. It is not so great for the white working class, where the number of married adults has plummeted from 83 percent to 48 percent in 50 years.

Who cares about that? We will. Because when the government defaults as the two chappies at the top are forecasting, then ordinary people will need their families and their neighbors again. Long before governments started throwing money around on social programs and long after they have stopped it, people dealt with the vicissitudes of life through social institutions, the mediating structures between government and individual like family, church, club, association.

The people that survive the panic will be the people with their own social safety net they will be the ones that scorned and mistrusted the supposed wonders of the government's social safety net.

Unlike the Union of Soviet Socialist Republics, which had four lies in its name, the government's social safety net has only three lies. For the government's social safety net is not social, not safe, and not a net.

Thursday, April 14, 2011

The tropes that the president used in his deficit speech Wednesday were the kind of tired talking points that you expect when you go to a liberal dinner party--any time this past 20 years.

You know how it goes. The debt problem started in the 1980s. Then "our leaders came together three times during the 1990s to reduce our nation’s deficit" so that in 2000 the nation's finances were in great shape. But then "we lost our way in the decade that followed. We increased spending dramatically for two wars and an expensive prescription drug program -– but we didn’t pay for any of this new spending."

Actually he's right. And the reason is that Republicans, following thinkers like Irving Kristol, have come around to the view that they shouldn't be the tax collectors for the welfare state. Our view is that welfare state spending all goes to Democrats, so let the Democrats raise the taxes to pay for it. On this view, the Bush 41 tax increases were a disastrous mistake, and the Bush 43 tax cuts a brilliant move.

Because now Obama is stuck with an unaffordable welfare state and he is the guy that has to start reining it in. Only he won't do it.

Now we learn that the supposed spending cuts agreed between the House Republicans and the president, the $38 billion, are in fact a mere $300 million or so. This is supposed to be an embarrassment to the Republican leadership and so it is, but it merely raises the stakes. At some point we have to cut spending and that means that the Democrats are going to scream blue murder.

Of course the centerpiece of the president's speech was the Medicare paragraph.

We will change the way we pay for health care -– not by the procedure or the number of days spent in a hospital, but with new incentives for doctors and hospitals to prevent injuries and improve results. And we will slow the growth of Medicare costs by strengthening an independent commission of doctors, nurses, medical experts and consumers who will look at all the evidence and recommend the best ways to reduce unnecessary spending while protecting access to the services that seniors need.

He's talking about the payment commission that will set rates for procedures. It's one of the "death panels" that Sarah Palin was talking about. At least the president is consistent. He believes in the liberal myth of administrative centralism, the reduction of social cooperation to bureaucratic rules and ukases.

Ninety years ago, an Austrian economist, Ludwig von Mises, showed by administrative centralism does not work. It cannot compute prices. Prices are the means by which we allocate resources, by which any society allocates resources beyond the boundaries of the family household. If you suppress prices, in a socialist state or in a government bureaucracy, you cut yourself off from knowledge about the use of resources. Then Mises' student F.A. Hayek extended the analysis. He wrote that the man in Whitehall (the seat of British government) could never make decisions that out-performed the millions of ordinary consumers and businesses making day-to-day decisions about millions of products and services. The government bureaucrat just couldn't know more than the millions of economic actors.

Our liberal friends have tried now for nearly a century to deny these dicta. That's because the logic of government power is always the power of the politician to allocate resources to favored political clients and away from less-favored clients. But every political act in the economic sphere is a net loss to society, because it is almost certain a less-than-optimum decision when compared with the decisions of producers and consumers. So the president's policy of administrative centralism is bound to fail.

President Obama made a mistake in making his speech yesterday. Any poker player could tell you why. His shrillness was a "tell" that he is losing the argument.

In fact the president is already behind the 8-ball. To get out of the present deficit spiral the federal government is going to have to implement some pretty severe spending cuts, and spending cuts are bound to fall on the president's own supporters.

But first the president wants to get reelected.

We're not actually winning, not yet. But the president is on defense, and Republicans are moving the ball downfield.

The big test will be the goal-line stand when the welfare-state beneficiaries realize that the cuts are real and the unions and the community organizers put them into the streets to demonstrate their rage. Then we shall see.

Wednesday, April 13, 2011

By now, conservatives should understand what liberals meant back in the mid 2000s when they said that "Bush didn't have a plan" on Iraq. Back then liberals were incensed that Bush's Iraq War wasn't tied off neatly with a liberal-style government in Baghdad six months after the Iraq invasion in 2003 so we could all get back to politics as usual here in the United States and talk about health care and inequality.

Who knows what the Bushies thought? But they clearly understood that the United States needed a buffer state to stop the expansion of radical Iran. They executed on the consensus in the Ruling Class in 2000 that we needed "regime change" in Iraq.

Back to Obama. To conservatives, it looks like President Obama doesn't have a clue. He is doing nothing to solve the entitlement crisis. In fact, so far in his presidency he has made it worse.

But from the perspective of the president and the Ruling Class, the concerns of conservatives mean nothing. For President Obama personally, his horizon is election and reelection. All of his current economic policy is directed at getting over the finish line in November 2012 without having to put on the brakes--which he will surely have to do immediately if he does get reelected. And as far at the liberal Ruling Class is concerned, the reduction of America to a universal centralized administrative program is not a bug, it is a feature. Everything the Ruling Class backs, ObamaCare, cap and trade, clean energy, net nuetrality, Pell Grant expansion, all this merely advances the chains for centralized bureaucratic management by an educated and evolved elite. Of course there is an unfunded deficit of $100 billion on health care. But over the next decade the Ruling Class will set up the administrative structure to share our national resources so that health care is fair and it is effective and it is equal. What's the fuss?

The fuss is, of course, that conservatives don't want an America run as a patrimonial estate by a liberal ruling class. We want an America which is, in the largest sense, creative, dignified, and free, in which the powers of the state, the economy, and the moralists are limited, an America in which you are allowed to do most things without permission, where you are allowed to keep the honest product of your labors, and in which you are allowed to ponder and develop the meaning of life, all within a social life of families and free associations.

From the conservative perspective, therefore, it looks as though Obama "doesn't have a plan." In other words, with Obama in charge there is no way to get there from here.

And make no mistake. After the president's speech on deficit reduction tonight, to conservatives it will still look as though he "doesn't have a plan."

Tuesday, April 12, 2011

Conservative policy supremo Charles Murray has a new book coming out about the class divide in America, between the upper-middle class, the 20 percent at the top that is doing fine, and the 30 percent at the bottom that isn't. Reportedly titled "Coming Apart," you could say the book is a sequel to Murray's book about social programs, Losing Ground. There's a great video of Charles Murray delivering the numbers here. Murray has limited his story to white America. Because the story he has to tell is not about race.

Here's the basic message. Back in 1960 about 88 percent of the top 20 percent of 30-49 year-olds was married and about 83 percent of the bottom 30 percent was married. Now it is 83 percent and 48 percent. That's right. Less than half of the working class is now married, but there's hardly been a change in the top 20 percent.

Rick Lowry of National Review extracts the rest of the details from Murray's talk.

"In 1960, births to single mothers in the working class were just 6 percent; now they are close to 50 percent."

"In 1960, 1.5 percent of men in the upper middle class were out of the workforce; it's 2 percent now. In 1968, the number for working-class men hit a low of 5 percent; even before the spike in unemployment after the financial crisis, it was 12 percent in 2008."

Today, "Among the upper middle class, 42 percent say they either don't believe in God or don’t go to church. In the working class, it's 61 percent."

The next thing to do is to decide who's to blame. Well, we conservatives know what to do about that.

But the bigger question is: how do we change the culture so that all Americans can participate as full social members in American society? When you have a big chunk of the bottom 30 percent not married, not working, not contributing to society, you have a society that is not very social.

But then, we conservatives would say, what do you expect? Administration and bureaucracy, the basic logic of the welfare state, are not the characteristics of society, they are the characteristics of an army.

Monday, April 11, 2011

Yes, we know that a cut of $38 billion is nothing. But it is a start. And President Obama "the follower" is promising deficit reduction on Wednesday.

But it is counterproductive to go for the jackpot in one throw of the dice. Think what would happen if Republicans got all they wanted right now. Here's what would happen. The current crisis would recede; the alarm bells would stop clanging. Politics would go back to normal.

The fact is that the beneficiaries of government spending will only agree to cuts when they are frightened--or at least when the American people are frightened enough to harden their hearts against the usual rhetoric about women and minorities hardest hit.

The only way to get real reform of government spending and real reform of entitlements is to maintain the fear, the real fear of government default. Only in a climate of fear will the politicians reform the government.

We all get upset when the other guys use fear. Liberals hated it when conservatives chanted that "The Russians are Coming." Conservatives hated it when, back in the 1960s, liberals forecast "a long hot summer" if important social programs weren't passed. But the truth is that nothing happens unless one side or the other gets afraid.

We know how this works from recent history. Back in the early 1990s national politics was defined by the budget deficit, and Presidents Bush and Clinton used the fear to raise taxes. Speaker Gingrich used the fear to cut spending. But in 1998 the budget went into balance, and people breathed a sigh of relief. And they signed on to more spending. And more and more spending until the mortgage meltdown of 2008. Now we are back into a budget fear cycle, and the American people are afraid enough to agree to spending cuts.

Rush Limbaugh this morning is skeptical about the MSM mantra that Speaker Boehner cleaned President Obama's clock. They are just ginning up their base, he warns. But I think that some different is happening. The Democrats need to lower the expectations of their base. They need to lead them, at least for now, into a tactical retreat and still the voices calling for an all-out dog-fight. Then, after another couple of skirmishes, maybe they will call for a strategic retreat.

The number one priority for a general is to keep his army together and avoid a decisive defeat in which his army is routed and falls apart. In such a defeat a number of formations will become so disorganized that they cease to exist.

But Republicans should not seek a decisive battle yet. Democrats are too strong for that. Maybe after a year or two of dispiriting retreat and demoralizing desertions: maybe then there will be the chance for a decisive battle on the right ground that favors a big Republican win.

Friday, April 8, 2011

Discussing the Ryan Budget Plan on April 6, 2011 Chris Matthews illustrates America's big problem in the coming months and years. It's the liberal blind spot. Liberals cannot imagine an America in which the government is not paying for Medicare and the other entitlements. Here's Matthews talking with Mark Halperin and Chris Cillizza. He asks:

Why would the government stop paying the bills of Medicare patients?

He just cannot imagine it. He knows how the world works.

The government will provide the health care for seniors it has promised to provide them, or we will be out of business. The people won't elect them any more. And the government that comes along, the president who says I'm not going to pay the health care of seniors which we promised to do is in big trouble.

You see the problem here. Chris Matthews cannot imagine an America in which the government can't afford to pay for Medicare. And why should he? He's lived his entire life in a world in which the government has paid on its obligations.

But if you step out the warm glow of the present you find that governments are always reneging on their promises. Right now there are a ton of books out there that go through the history in gory detail. There is Carmen N. Reinhardt and Kenneth S. Rogoff in This Time is Different. There is John H. Wood and A History of Central Banking in Great Britain and the United States. Not to be left out is Transferring Wealth & Power from the Old to the New World: Monetary and Fiscal Institutions in the 17th through the 19th Centuries edited by Michael D. Bordo and Roberto Cortes-Conde. A more popular financial history is Niall Ferguson's The House of Rothschild.

These authors tell the story of the many, many government defaults in the past few centuries. Reinhardt and Rogoff are perhaps the most direct. When government debt payments get to about 10 percent of GDP, they argue, then chances are the government will default.

Let's look at our own governments with debt at about 120 percent of GDP (including state and local) and interest payments at about 2 percent of GDP. No problem, you say.

But suppose things change. For instance, right now in 2011 the Feds are paying $206.7 billion in interest on a debt of $15.4 trillion. That is a mere 1.34 percent interest.

no frames

Suppose that average interest rate goes up to about 7 percent in a couple of years when the debt is $17.8 trillion. Why then interest payments on the federal debt will go to $1.2 trillion. At that point we are talking about real money. But what happens if the government can only roll over its debt at 12 to 13 percent interest, as happened to Greece recently? If that happens the government will be looking at a interest bill of about $2 trillion a year crowding out Medicare at $500 billion and Medicaid at $350 billion.

I will tell you what will happen. Politicians will start making back of the envelope calculations about who they can afford to piss off. Do they piss off the government workers? The unemployed? Or to they short the geezers and fiddle around with Medicare?

I'll tell you what I think. When the government starts defaulting and people start demonstrating in the streets the politicians will figure that the geezers can go eat the paint off the walls. They will be worrying about civil unrest and riots in the inner cities. They won't be worried about seniors and their hip replacements.

You can understand the reluctance of liberals like Chris Matthews to get out of the liberal bubble, do a bit of reading, and find out what actually happens when a government defaults. It misses the point to say: "the president who says I'm not going to pay the health care of seniors which we promised to do is in big trouble." The president who says that is not saying it just because the mood takes him. He is saying it because he is already in trouble so big that the rage of 50 million seniors doesn't seem all that much of a problem.

In fact, of course, those seniors won't be angry when the balloon goes up. They will be frightened, and they will be desperately hoping against hope to retrieve something from the financial catastrophe of a government default.

Thursday, April 7, 2011

Now that the world-famous usgovernmentspending.com has the Ryan Budget Plan up, we can look at the numbers. We've taken Table S-3 and S-4 from "The Path to Prosperity" and ginned them up at the Budget Analyst section at usgovernmentspending.com. Look at the numbers in the out-years from 2016 and 2021.

Yeah. Look at the difference in Total Outlays between the Ryan Budget and the president's budget. It starts at $617 billion for 2016 and ends up at more than a trillion dollars a year by 2021. Wow! So where does all the money come from? Half of it comes from $233 billion savings in Net Interest expense and $244 billion from repealing ObamaCare. Then comes Other Mandatory programs at $225 billion savings, and finally reforms of Medicaid at $170 billion. So really the cuts don't bite that much into the sacred programs of Medicare and Social Security. Not yet. That's because Medicare reforms don't start until the current 55 year olds retire and Ryan doesn't attempt to reform Social Security.

They say that the Ryan Budget Plan is a huge risk for the Republicans. But you have to wonder if it's all that big a deal. Nobody is going to be out of pocket for ten years except for Democrats cashing in on jobs programs and all the little programs in the budget.

But considering that the Democrats have been feasting and partying on the government dime for the last half century, maybe it's time for them to go on a diet for a while. In the interests of their own health, of course.

Wednesday, April 6, 2011

Center-left blogger Mickey Kaus is probably right when he says that the Ryan Budget Plan is "near-suicidal." His line is that voters like Medicare and will feel that the Ryan replacement will offer them less security that Medicare. Maybe he is right, although I'd say that the current Medicare setup is as secure as a wad of $100 bills sitting on a bar.

But the point of the Ryan Budget Plan is not to be a blueprint for action. It is a marker. Democrats will rail against it and demagogue it and howl that it throws grandma into the street right up until the day they pass a version of it and say they invented it.

After all, we've already seen how this kind of politics works. Democrats railed against the main features of the Bush War on Terror--the Patriot Act, Guantanamo, Iraq, military tribunals--insisting they were fascist and violations of civil rights right up until the moment the Obama administration folded them into its own security policy. The fact is that Democrats have a delusional foreign policy, keyed off their lefty base, and only putting Democrats in power and forcing them to confront reality makes Democratic politicians get away from the lefty narrative and face reality.

On the welfare state we have a similar delusion, the idea that administrative bureaucracies can substitute for the safety net and the affective satisfactions of traditional social life in families, kindred, and associations. But for Democrats the problem is compounded by their electoral politics which regresses to the ancient patron-client form of political life. In Democratic politics you vote for Democrats because they "fight" for you against a cruel oppressive world, securing hard-won benefits for you against the implacable corporate power that would otherwise leave you starving and sick.

The Ryan Budget Plan would turn the corner on the patron-client form of politics and cut out the political middleman for millions of voters. It would impose a middle-class culture on the big social programs and nudge the old helpless-victim caring politician axis away from the center of political life.

Obviously Democrats will resist this plan, right up until grannies are starving in the streets from hyperinflation and a government default. Then Democrats will agree to the Ryan reforms, or son-of-Ryan reforms, or grandson-of-Ryan reforms, and the Ryan approach will suddenly shine with the illumination of liberal approval.

Tuesday, April 5, 2011

So now it's out, the reckless, extreme budget proposals of Rep. Paul Ryan (R-IL) and he is proposing to cut $6.2 trillion in government spending over ten years compared to the president's FY2012 budget.

On taxes, Ryan proposes a simplified tax system with a top income tax rate of 25 percent.

Of course, We'll have the numbers up on usgovernmentspending.com later today, so you can compare, function by function, the Ryan budget with the president's budget, but it looks to me that the big items are:

Punt on Social Security. Ryan has no proposal for Social Security. He just says that "in the event Social Security is not sustainable, the President, in conjunction with the Board of Trustees, must submit a plan for restoring balance to the fund."

Change Medicare for younger workers. "Medicare will provide a Medicare payment and a list of guaranteed coverage options from which recipients can choose a plan that best suits their needs." There will be "additional assistance" for low-income folks and those with "greater health risks".

Block grant Medicaid and Food Stamps Medicaid will be converted into a "block grant tailored to meet each state's needs, indexed for inflation and population growth." On food assistance: "Convert... SNAP into a block grant tailored to each state's low-income population, indexed for inflation and eligibility beginning in 2015".

Turn job programs into scholarships. "Consolidate... job-training programs into more accountable career scholarships". Also return Pell grants to pre-stimulus levels.

Lower Tax Rates. Return taxes to 18-19 percent of GDP, and reduce top federal income tax rate on individuals and corporations to 25 percent. Remove many "tax expenditures."

It's a bold program, and we'll see what happens to the politics in the next few days.

The big takeaway is that there is no proposal on Social Security. And, as I have written, there is no need. Social Security will rise from the present 5ish percent of GDP to a 6ish percent of GDP over the next 30 years. Thus there is no playing with the Third Rail. The big problem is health care entitlements, Medicare and Medicaid, and that is where Ryan has big proposals for reform.

Monday, April 4, 2011

In Sunday's New York Times uber-diplomat Henry Kissinger writes approvingly of Otto von Bismarck, subject of a new biography by Jonathan Steinberg. Writes Kissinger:

Bismarck is often cited as the quintessential realist, relying on power at the expense of ideals. He was, in fact, far more complicated. Power, to be useful, must be understood in its components, including its limits. By the same token, ideals must be brought, at some point, into relationship with the circumstances the leader is seeking to affect. Ignoring that balance threatens policy with either veering toward belligerence from the advocates of power or toward crusades by the idealists.

Bismarck dominated because he understood a wider range of factors relevant to international affairs — some normally identified with power, others generally classified as ideals — than any of his contemporaries.

But the point about Bismarck was the he was tragically limited, a brillient tactician that manipulated Germany onto the world stage as a misshapen hunchback, immensely powerful but uniting the world against it. He strangled the good Germany that longed for freedom and community and delivered it to a princely dynasty long past its sell-by date. When Bismarck left the stage of history there was nobody with the genius to replace him. Writes Kissinger:

Bismarck’s successor, Caprivi, pointed out the essential weakness of the Bismarckian system by saying that while Bismarck had been able to keep five balls in the air simultaneously, he (Caprivi) had difficulty controlling two.

Some of us think that was the problem with Kissinger. It's all very well to have a brilliant power manipulator running foreign policy. But what happens after he's gone? Maybe it's better to be ruled by amiable idiots rather than manipulated into an impossible position by an evil genius.

The great achievement of Bismarck was to unify Germany. But the great evil of Bismarck was to unify it with military victory, bathing the Hohenzollern princes in the glow of German excellence on the field of battle. The result was to sweep the men who could have been the Burkes, the Jeffersons, the Hamiltons off the stage and replace them with ciphers, completely lacking in the skills to put Germany at the head of Europe without scaring the pants off everyone.

The joke is on us. Today, a century after the Great War, Germany presides in avuncular fashion at the head of Europe, and its chancellor is a motherly woman, Angela Merkel. Imagine if the Germans had achieved its avuncularity in 1900 rather than 2000.